Cryptocurrencies are more accessible to everyone as they are structured to be accessible to everyone, regardless of nationality or birthplace. They are decentralized, which eliminates the need for a central authority and puts the value of the currency in the hands of the end consumer. Cryptocurrencies are also easily transferable, with funds being able to be transferred within a few seconds, 24 hours a day, 7 days a week, anywhere in the world, with zero restrictions. They also offer greater privacy compared to traditional banking systems which collect substantial personal information from customers for KYC purposes.
The rapid widespread of Cryptocurrencies is because they are easy to use, transfer, store, and trade, and also, cryptocurrencies are more secure and fast. Many believe that cryptocurrencies fulfill the current monetary system's weaknesses and are the better-digitalized version of fiat currencies. Cryptocurrencies are bringing evolutionary changes in the payment system, and they could potentially change the way we use, keep and spend money in the future.
Therefore, in this topic, we are going to cover the fundamental advantages of cryptocurrencies.
Easily accessible to everyone
It cannot be ignored that the biased regulatory system placed at the core of the banking structure in the current monetary system is one of the main reasons behind the 1.7 billion unbanked people in the world. In the current monetary system, convenience and accessibility have been sacrificed to the bias and discriminatory policies many banks have adopted to conduct KYC (Know Your Customer) and background check of their clients.
Such measures have affected many individuals worldwide and impacted the world’s economy negatively as a whole since many individuals cannot access basic banking services; therefore, there are not participating in the global economy.
Banks and financial institutions can easily deny offering their services to individuals they consider high risk simply because of their birthplace, nationality, and other discriminatory measures. But unfortunately, there are no effective policies by the governments to prevent and fix these discriminatory measures and one-fits-all policies to promote equal opportunities for everyone.
But fortunately, cryptocurrencies can be a solution to this. This is because cryptocurrencies are structured by nature to be accessible to everyone. Although recently, the government has forced crypto exchanges to verify and conduct basic KYC procedures for their customers when buying cryptocurrencies. But still, it is way more accessible to everyone than opening a simple bank account. In fact, anyone can create an infinite number of wallets without reference to the name, address, or any other information.
The current monetary system is centralized; the fiat currencies we use today are centralized, controlled, regulated, and backed by the government and the central bank. This makes their value heavily dependent on the performance of the specific country in terms of economic, political, social, and even environmental and also on the decisions made by the government and the central bank. For instance, a fiat currency can be weak and unstable, like the Vietnamese Dong or Indonesian Rupiah, and another can be stable and strong, like the US dollar. Therefore, decisions made by the government and the central banks and their willingness to honor the obligation can affect the value of a country’s currency negatively or positively. Furthermore, since it is heavily controlled and centralized, the bank is free to adjust its value to meet specific funding obligations or economic goals, which may not be in the best interest of the consumers. In other words, the value of the money in your pocket will always be controlled by the central authorities.
On the other hand, cryptocurrencies are decentralized; using cryptography and distributed algorithms, cryptocurrencies offer a fully decentralized setting that eliminates the need for a central authority. The network is distributed to all participants; each computer mining node is a member of this system. This means that the central authority has no power to dictate rules for the owners of cryptocurrencies. And even if some part of the network goes offline, the payment system will continue to operate smoothly. Furthermore, the value of the cryptocurrency (Coin) is determined purely on the current demand of the coin without a central authority having any influence over it. In other words, the value conveyed by a cryptocurrency is fully in possession of the end consumer, and nobody can change it artificially. In addition, using cryptography and distributed algorithms, cryptocurrencies offer a fully decentralized setting where no single entity can monitor or block funds transfers.
In the current system, many requirements and procedures exist for a person to conduct a transaction or a simple transfer of money. First, the bank has to operate; the transaction cannot be done on weekends and public holidays. Second, the receiver location should meet the regulatory standards of the banks; the transaction cannot be done if the receiver is located in a high-risk jurisdiction (Refer to the FATF website for the list of high-risk jurisdictions). Often, documents are needed for pre-approval by the bank, especially if the amount is substantial. High-frequency transactions could be red-flagged by the bank's internal risk assessment system, which could lead to the interrogation of the client by the bank and the potential termination of the service by the bank. Therefore, sometimes a simple cross-border transaction can take up to 10 days to deliver to the beneficiary bank to the receiver.
In contrast, as mentioned, cryptocurrencies use cryptography and distributed algorithms, where no single entity can monitor or block funds transfer. Funds can be easily transferred from one person to another within a few seconds, 24 hours a day, 7 days a week (even on Sunday evenings), anywhere in the world, with zero restrictions. There is no limit on the amount, number, and destination of the transactions. Transactions can be done without hassle; coins cannot be faked, copied, or spent twice by anyone. Cryptocurrencies give total freedom to consumers to use, store, transfer and spend their wealth without any restrictions.
In order for the banks to offer their service to their clients, they need to collect substantial information from them. This information is collected in the bank database for KYC (Know your customer) and regulatory measures and often is used for marketing purposes. Unfortunately, this sensitive information collected from customers can sometimes be lost, stolen, or abused.
However, a blockchain based-cryptocurrency like Bitcoin is encrypted and decentralized; thus, there is no middleman to control and process the transactions. The transactions are processed over a peer-to-peer network. Special users, known as miners, collect transactions and store them in blocks. These blocks are subsequently stored in a global public ledger of transactions known as the blockchain. The public ledger is used as a record-keeping system that maintains participants’ identities in a secure and anonymous form. The blockchain makes everything transparent since all transactions are stored in the blockchain, and everyone can see them.
Low Operation Cost
Conducting a transaction or even maintaining an account with a bank can be costly. Banks charge transaction fees and commissions on almost every service they offer. In fact, in many countries, banks charge maintenance fees from their clients to keep their accounts running unless the client meets the minimum balance requirement imposed by the bank, which can be high for many people.
However, cryptocurrencies transactions fees are significantly lower than banks, and there is no maintenance fee for storing them. Instead, a small blockchain network fee is charged once a transaction is conducted to pay the minors to verify the transactions.
Inflation is simply a rise in the macroeconomy's average price of goods and services. Moreover, inflation is defined as a reduction in the purchasing power of a single unit of money over a certain time period. One of the main weaknesses of the current monetary system is inflation. In simple words, inflation happens when banks print too much money to meet their national debt obligations or to achieve certain financial goals. An increase in the supply of cash in the economy will result in potential downward pressure on the value of the specific currency. An extremely high inflation rate is very likely to impact the country's exchange rates with other nations negatively. Zimbabwe is the classic example of hyperinflation, which substantially led the country to stop printing its own currency and adopt the US dollar.
However, Inflation does not apply to cryptocurrencies as their supply is limited. One of the stated benefits of the first cryptocurrency (Bitcoin) was that its supply was not controlled by any individual, entity, organization, or even government but was subject strictly to the predefined laws of mathematics and the limits of computing power. Bitcoin has limits built into its algorithm to control the maximum supply of bitcoins that can be mined, capped at 21 million. Therefore, its value is purely driven by demand, and inflationary forces have no impact on its value.
To sum up, cryptocurrencies have a lot to offer; they are a solution to the weaknesses and pitfalls of the current monetary system. While many argue that the centralized and hierarchical nature of the current monetary system and the biased regulatory measures in place have impacted the economy negatively, especially when looking at the global financial crisis that was started and triggered by banks and financial institutions. The role and effectiveness of cryptocurrencies in fulfilling the weaknesses of the current monetary system have become significantly more apparent.